Bitcoin has been touted as an online version of gold - a currency immune from
manipulation. Others say it is just the latest investment fad.

Are we witnessing the first cyber-bubble? A new online-only "currency" called Bitcoin has seen its value soar recently – but many people have probably never heard of it. Here we explain what it is and whether wise investors should give it a wide berth.

What is Bitcoin?

It's a new currency, designed especially with online trading in mind. Two things set it apart from other currencies. First, there is no government or central bank behind it – it was created by individuals and is now run, in effect, as an online international cooperative.

Second, the designers have put an upper limit on the number of Bitcoins that can be created – they are ruling out in advance the type of quantitative easing (QE) or money printing that has worried savers throughout the developed world.

Fear of QE eating away at the real value of familiar currencies is one reason. Other buyers are simply speculating. Some do intend to use Bitcoin to buy things online.

Who controls it?

The rules behind Bitcoin were put in place in 2009 by Satoshi Nakamoto, about whom very little is known. However, anyone can create new Bitcoins.

Doesn't this make it worthless?

Bitcoin's creators realise that, for anything to be valuable, it has to have some scarcity. So Bitcoin has been made difficult to create. You need powerful computers to do so, and the process is continuously being made harder.

Some draw an analogy with gold. The metal is valuable only because it is rare – mining is costly and difficult. Creating new Bitcoin is called "mining" to stress the point.

But even if someone – an expert programmer or hacker, say – found a way to make more Bitcoin easily, there is a limit of 21 million on the number that can exist. Each unit of the currency is tracked by the computer network to ensure that the limit cannot be breached.

How do you get hold of it?

It trades online at sites including eBay and various specialists. Prices can vary greatly.

Is it a good investment?

The price has gone through the roof recently. Some blame the crisis in Cyprus for undermining faith in normal cash deposits, although last week's huge expansion of QE in Japan could also have played a part.

What do the experts say?

Alistair Cotton of Currencies Direct, a foreign exchange dealer, said: "The idea is a good one. With rapid technological progress, digital currencies are a logical step forward for settling payments online and eventually offline as well.

"But currencies, whether digital or physical, always remain open to speculation and price movements can be extreme. Cyber-security threats also plague Bitcoin. If your 'digital wallet' is hacked, there's no Financial Services Authority, or equivalent, to insure you."

He added: "Using Bitcoin will continue to be attractive long after prices revert to more sensible levels, but buying Bitcoin to speculate comes with a serious wealth warning."

Liam Halligan, who writes The Telegraph's Economic Agenda column, said: "The rapid expansion of Bitcoin is a stark symptom of the fact that investors are finally realising that 'fiat' currencies are being deliberately debased and devalued by highly indebted governments."